The Netflix of China Is Invading the US With Smartphones

When I describe Letv as the Netflix of China, Mark Li corrects me. "It's the other way around," he says. "Netflix is the Letv of the US."

He has a point. Letv launched its Internet video streaming service three years before Netflix (2004 versus 2007). It was producing original movies and series long before Netflix rolled out House of Cards. And in recent years, the Chinese behemoth has expanded in ways Netflix hasn't: It sells TV settop boxes and smart TVs—devices that can help you watch all that video. "We want to control the screens too," says Li, the ex-Googler who is head of data analytics at Letv, a company with a $12 billion market cap.

What's more, the company soon will move into the US, encroaching on Netflix. Li will lead the effort, bringing Letv's video streaming service, its original programming, its Apple-TV-like settop boxes, its smart TVs, and, now, smartphones.

It's the other way around. Netflix is the Letv of the US.

Mark Li

This morning, Letv announced its entry into the Chinese smartphone market, and according to Li and his colleague JD Howard, the company plans to offer phones in US by year's end. "We're going to be building a big presence here," says Howard, a former executive with Chinese computer marker Lenovo, referring to the west coast of the US.

It's an audacious move, given the dominance of Apple and Google in the stateside smartphone market—and the limited track record of Chinese tech companies in the US. But as Li and Howard explain it, Letv isn't a smartphone company. It's an Internet video company. The phones are a way of delivering video.

"What's going to be critical," Howard says, "is what you use your smartphone for."

So many questions hang over the American aspirations of these Chinese companies—and Li admits as much. But he and Howard aim to enter the US market with certain blend of patience and audacity. They will respect the unique nature of the market, they say, but also offer tools no one else has offered. "There is room for innovation," Howard says, "for offering a very different experience."

At the moment, Li and Howard say, their aims are modest. Basically, they see their phones as a way of delivering Chinese video to Chinese speakers here in the US. Then they may do much the same for people who've immigrated to the US from other countries. "If you want to have a little taste of your home," Howard says, "you can have that." But the hope is that they can eventually reach the broader market. In addition to opening an office in Silicon Valley, Letv is setting up shop in LA to be close to the creators of the content its screens are made for.

A Formidable Task

Still, the hurdles to entering the highly competitive US smartphone market are enormous. "This is probably more work than they expect," says Dan Miller, the founder of research firm Opus Research, who closely follows the market. "Supply chains. Relationships. Getting room on retail shelves. As you go down the list, it becomes such a formidable task." Offering phones based on the Android operating system, Letv could face legal action from companies like Apple and Microsoft. And US consumers may be wary of using devices that connect to machines in China. Many assume that Chinese companies freely share online data with the Chinese government, and the recent demand that Western tech companies provide Chinese authorities backdoor access to their hardware and software is hardly reassuring.

But Li says that Letv will run its online services from servers in the US, if need be. "We will do what is necessary to make the consumers feel like their rights are being protected," he says. And he points out that the company will offer more than phones, including settop boxes and smart TVs. In China, the company has even said it will offer electric cars. People watch TV shows and movies in cars too. It's the video, Li says, that will carry the company's devices forward.

That may or may not offer a path to success. Remember: Amazon, another stateside company that does streaming online video, recently tried and failed to crack the smartphone market (its tablets and e-readers do okay). But Letv's arrival shouldn't be discounted out of hand. The company is playing the long game. Given its success in China, it has the resources to do so. And the same could be said for more than one Chinese tech giant on the edge of the US market. American consumers—and companies—are used to their gadgets being made in China. Chinese brands may not be far behind.